Photronics Inc (PLAB) 2017 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to Photronics Second Quarter Earnings Call. (Operator Instructions) As a reminder, this conference call is being recorded, Wednesday, May 17, 2017.

I would now like to turn the conference over to Troy Dewar, Director of Investor Relations.

Thank you, Bridget. Good morning, everyone. Welcome to our review of Photronics' 2017 second quarter financial results. In addition, we will be discussing our announcement this morning of a new joint venture in China.

Joining me this morning are Dr. Peter Kirlin, Chief Executive Officer; Sean T. Smith, Senior Vice President and Chief Financial Officer; and Dr. Christopher Progler, Vice President, Chief Technology Officer and Strategic Planning.

The press releases we issued this morning, along with the presentation material which accompanies our remarks, are available on the Investor Relations section of our web page. Comments made by any participant on today's call may include forward-looking statements that include such words as anticipate, believe, estimate, expect, forecast. These forward-looking statements are based upon a number of risks, uncertainties and other factors that are difficult to predict. Actual results may differ materially from those expressed or implied, and we assume no obligation to update any forward-looking information.

Finally, during the course of our discussion, we will refer to certain non-GAAP financial metrics. These numbers are useful for analysts, investors and management to evaluate our ongoing performance. A reconciliation of these metrics to GAAP financial results is provided in our presentation materials.

At this time, I'll turn the call over to Peter.

Thank you, Troy, and good morning, everyone. We are very excited you've chosen to join us this morning. In addition to providing an overview of our second quarter financial results, I'm pleased to share with you today, we are announcing the formation of new joint venture with Dai Nippon Printing, or DNP.

This new JV will effectively extend our existing Taiwan partnership with DNP to now include Mainland China. This is a great agreement, built upon a very successful relationship in Taiwan and one which I firmly believe will benefit our customers, employees and shareholders.

I will say more of the JV in a few moments. But first, I would like to offer my perspective on our second quarter results and current business trends.

Second quarter sales were essentially flat, as double-digit growth in FPD was offset by a modest decline in IC demand. FPD sales improved sequentially for the first time in several quarters, primarily due to strong mainstream demand.

It's worth mentioning that FPD sales improved each month during the quarter, with April being the strongest month in the period. In fact, our facilities are running near full capacity as we exited the quarter. We anticipate this will continue even as we add capacity over the next several months.

The first of 2 writing tools we ordered last year is being installed as we speak, and we anticipate the second to begin installation early in Q4. Our expectation is that both tools should be fully utilized once they are installed and qualified.

High-end IC, while down sequentially, also achieved improving sales trends during the quarter, with a relatively higher level of backlog as we ended the third quarter. High-end memory demand had a positive impact on our sales as did foundry logic in Korea.

High-end logic in Taiwan remained very soft, but we anticipate improving demand trends, now that our largest IC customer has obtained approval to produce 28-nanometer in their new China fab. It will take a few months for them to complete qualifications and ramp production, and the timing of these processes is always difficult to predict with certainty, but we should benefit as they successfully accomplish this.

Gross margin was pressured by unfavorable product mix and we were negatively impacted by a foreign currency exchange loss in other income. However, when you get to the bottom line, EPS was equal to the first quarter.

Cash generation was once again positive for the quarter, improving our financial strength and flexibility. As we continue to invest in our future, it's very reassuring that we are in a position to fund planned organic growth projects.

Coupled with the impact of today's JV announcement, we should be able to fund the China IC expansion while using less of our cash. Additionally, we remain active exploring M&A opportunities and want to be able to fund these without the need to incur excess leverage.

So in summary, second quarter performance was essentially in line with the first quarter. We saw improving demand across the business during the quarter, and believe those positive trends will continue as we move into the second half of the year.

The business is moving in the right direction, and I'm pleased with the response of the entire organization to take full advantage of the opportunities the market presented to us.

During the quarter, we realigned our Asian management team to better support our customers' operations in the region and we are already beginning to see results. All these factors support the optimism I have regarding our performance going into second half of the year.

Shifting gears to discuss our growth thrust in Asia. Many of you will recall that, approximately 3.5 years ago, we announced the JV with DNP to combine our efforts in Taiwan. I have been in the photomask industry for many years and JVs like this are extremely rare. There are examples of photomask suppliers partnering with customers, but not 2 competitors, especially 2 large competitors coming together.

But the timing was right and the conditions supported the formation of the JV. Looking back, we believe that the Taiwan JV has been successful by any measure you choose. Sales to UMC have grown every year since we formed the JV, and we expect that trend to continue.

Additionally, and more importantly, PDMC has been profitable each year and generates significant operating cash.

PDMC has become a recognized leader in the Taiwan photomask industry. We have been extremely pleased with the relationship that has developed with DNP. As a result, today, we are announcing the next step in our partnership.

With today's announcement, we are effectively extending our JV with DNP into mainland China. This includes the facility currently in construction in Xiamen, plus all photomask sales within the country, including high-end logic and memory. This partnership should allow us to more effectively compete for the merchant market photomask business in China, combining our sales and business development channels to best serve local customers.

By leveraging our share resources in Taiwan, we can extend the PDMC brand that our customers recognize, using the people and technology behind our Taiwan success. Dr. Frank Lee, the President of PDMC, will hold the same position at PDMCX. This agreement allows us to utilize all cash held in Taiwan, and greatly reduce the risk of ramping our new factory in China.

When we announced the investment in China last August, we stated this will help us achieve our strategic priorities: maintain mainstream market share, win new high-end business, and expand geographically. Forming this partnership with DNP should allow us to achieve these objectives more efficiently and with less risk.

I truly believe today's announcement is the next logical step in the evolution of our IC business.

Finally, just a quick update on our FPD plan as it relates to China. We are still in the planning phases and are evaluating potential sites for expansion. As I stated before, just what we've done with IC, it's important for us to have a strong commitment from the customer in the region and we are actively engaged in discussions with several leading display producers.

At the same time, the market situation in displays is very dynamic, as more and more capacity is being added in China and the mobile market technology shift to AMOLED accelerates. We'll make sure the decision we make optimally position us to benefit as the high-end display markets evolve in Korea, Taiwan and China.

At this time, I will turn the call over to Sean to provide more details on our second quarter performance as well as our outlook for Q3.

Thanks, Peter, and good morning, everyone. Second quarter sales sequentially were essentially flat as a decline in IC sales were largely offset by a higher FPD demand.

IC sales were down 4% to $83 million, high-end IC sales were down $3.4 million, due primarily to decreased high-end logic demand in Taiwan.

FPD sales increased 10% quarter-over-quarter. High-end sales were essentially flat sequentially while mainstream's mask increased $2.7 million sequentially.

As Peter stated, FPD business grew month-by-month during the quarter, primarily mainstream. We do expect orders to continue to be driven by new AMOLED displays for smartphones.

Last year, we announced an additional investment in FPD capacity, which we are beginning to install. We're confident in growing demand in the second half of the year and believe these new tools should set us up to benefit from this trend.

On a year-over-year comparison, both IC and FPD were down significantly as the high-end business was exceptionally strong during the second quarter of 2016.

Gross margin decreased sequentially, primarily due to product mix, as Peter alluded to. Operating expenses were essentially flat sequentially. As a result, our operating margin was 5.1%.

Net income was $1.8 million or $0.03 per share and includes a $3.6 million of other expense, primarily related to foreign exchange loss as U.S. dollar and Japanese yen weakened as compared to our foreign sites' currencies during the quarter.

Minority interest income was $300,000 as our JV in Taiwan was impacted by the reduced high-end logic demand in Taiwan. EBIT was $25 million in the quarter and represents $120 million for the last 12 months.

Operating cash generation was $15 million and we spent $4.6 million on CapEx. As a result, our cash balance now stands at $346 million, with net cash at $281 million.

Working capital stands at $380 million. Based on our latest projections, we still anticipate spending $80 million to $100 million in CapEx this year, including the balance of our FPD investment and $20 million to $30 million towards our China IC investment.

We continue to explore areas to increase the amount of redeployed tools used in China, which will have the effect of reducing cash outflows for investment in future years.

As Peter alluded to, we are excited about our announcement of our new JV in China with DNP in Xiamen. Last summer, we announced that we are building a greenfield site on our own. Now, with this partnership, we will be sharing the total investment of $160 million as we, in essence, have a 50-50 partnership. However, we will consolidate it. Additionally, the P&L impact for the start-up phase will be minimized, as we will share equitably the start-up costs.

Before providing third quarter guidance, I just wanted to remind everyone that our visibility is always limited as our backlog is typically 1 to 2 weeks. Also, demand for some of our products is inherently lumpy and difficult to predict.

Finally, as our high-end business has grown, and ASPs for these mask sets are higher and relatively few number of high-end orders can have a significant impact on our sales for the quarter.

Given these caveats, we expect the third quarter sales to be between $110 million and $120 million. This range assumes improved mainstream IC sales, mixed results in high-end IC and growing FPD sales, with orders for new AMOLED displays ramping at the end of the quarter.

Based on this revenue expectation and our current operating model, we estimate earnings per share for the third quarter to be in the range of $0.05 to $0.12 per diluted share.

We believe we have tremendous opportunity to build upon our market and technology leadership as well as continue to explore ways to use our balance sheet to produce sustainable, profitable growth.

Thank you for your interest. I will now turn the call over to the operator for your questions.

(Operator Instructions) Our first question comes from the line of Edwin Mok with Needham & Company.

So first question I have on the China joint venture. Just -- I mean, just straight to the point, why do you need to do a JV here? Is it -- it sounds like you also have some share cost and share risk, but is that just on cost? And also sounds like you can leverage resource from your Chinese -- Taiwan joint venture, is that the main motivation? Can you kind of explain to me the main motivation why you needed to do a JV? It sounds like you could have afford to be able to do it on your own. So just trying to understand that.

Yes. Our purpose there is to better serve the customer base, and as you said during the start-up phase, we basically -- we bundled the business that we have already developed in China and we should therefore ramp incrementally quicker and do a better job at providing what we would describe as a critical mask merchant in China. When we formed the JV with DNP 3.5 years ago, the way I would describe the China mask market was there was a couple of subcritical mask photomask supplies in the merchant space. Once we came together with DNP, it became very clear that there was a merchant there that was capable of partnering with any of the local customers. And I would say, in China, our biggest challenge is to ensure that no more captives spring up. And by partnering with DNP, we bring what looks very much to the China semiconductor industry as a -- not a supplier, but a company capable of being their partner as they move more aggressively into the IC business.

Okay. Does DNP have existing operation in China? Are they contributing into that? Or are they strengthening those resources? I'm just trying to understand that part.

Yes. They like -- in DNP, like Photronics right now, has sales and distribution. It's basically a -- they have a sales organization in China, developing the market. And I really can't speak to what else they have, except to say there's 1 or 2 significant development partnerships they have in place that will - the benefits of which will accrue in the joint venture. So yes, I think that's all I can really say.

I see. So their resources or the activity that they have been working in China will become part of the JV basically, right?

Edwin, it's very difficult to -- this is a great announcement, but we'll have to see as we move forward. But as Peter said in his prepared remarks, we'll have control of the distribution channel for both companies.

And I would just say again, I think globally, Photronics is recognized as being the preeminent partner to do development with in memory. And I think DNP has the same reputation in logic. So by coming together, as I said earlier, there is no one better as far as the customers go to develop new technology nodes with. So the JV allows the natural strength from both of us, to flow into that market. So it provides a one-stop shop for anything the customer needs in photomask, where the -- I think, the industry perception is it offers the best of everything.

Okay, great. On the business itself, you mentioned the high-end memory is strengthening. Are you seeing that from the foundry memory customer that you guys talked about previously? Or is it from the main former partner, Micron?

More of that is coming from the foundry memory business of our -- Micron still is a significant customer of ours, but they continue to build the majority, not all, but the majority of their photomask. So the uplift in memory was primarily other memory customers, and we expect to see more of that in the coming quarter. And I think, it's also true that, as we move into the second half of the year, we expect to see more outsource income from Micron as well.

Okay. That's helpful. And then finally, on the FPD side. It looks like this is going well. Just curious -- I remember, firstly, when you guys run full utilization, you have pretty much have a choice to push more, shift more of your business as towards the high-end, right? Because you only have so much capacity at that point, and that allows you to kind of, because of the higher ASP and high value that you generate for the high-end and ultimately generate better -- some incremental improvement in revenue. With the new tool coming in, do you guys do that still in the near term and in terms of the new tool that you guys start to install in the third quarter, when should we expect that to start contributing revenue?

Yes, as far as FPD goes, just to give you a little more clarification, we were not loaded, fully loaded, all quarter long, the FPD business built through the quarter. So we exited the quarter loaded, and we've tried to time the installation of the new tools, so that once they come online, we can qualify them and ramp them very quickly to full production. There's no doubt each one of those tools, when they come online, will generate an uplift in revenue, but our real mission is to have them generate revenue uplift as well as immediately have a positive impact on earnings. And that's critically dependent on whether it's half loaded or all-the-way loaded. So we expect the current -- I mean, the installation and qualification of an FPD tool is about a 3-month process. So we don't expect to see much impact from the new tool on the current quarter. We expect to see the impact in the -- in our Q4. Having said that, we're about $5 million below this quarter, peak run rates. So the way we see it, we have run room to step up in Q3 based on a full quarter of fully loaded tools. And then, we should see a step-up in the quarter after that, based on having a new tool that is rapidly loading. And then, during that quarter, the second tool gets installed and qualified. And then the quarter after that, we have the benefit of that tool to gain more market share and see our business step up. So we kind of see 3 sequential step-ups in FPD as we first fully utilize current toolset this quarter, enjoy the benefit of the next tool that we're installing in Q4, and then in Q1, have the benefit of the second tool that we've installed in the fourth quarter. So it's really step by step by step.

Our next question comes from the line of William Stein with SunTrust.

Many of my questions have already been asked and answered. But I'm hoping you can comment on margins. They're currently still well below the early 2016 level peaks. Do you think that you can get back there with any -- in any sort of reasonable timeframe? And what would be the biggest contributors to that ramp? Is it revenue level, mix, cost controls, anything else?

I think, it's primarily high-end revenue. The cost controls are -- as we stated, the operating costs are well in line. But it's really high-end revenue. And if we look year-over-year, I think we said in the prepared remarks, high-end revenue is down, but we can back there, we just have to have the business ticking. FPD, high-end memory and high-end logic. But that's where we need to get back to. But the results for the quarter, aside from the top line being somewhat muted, demonstrated improved balance sheet quarter-over-quarter. So our cash position has improved. So we are well-positioned for a ramp, and we have installed capacity, absolute -- Peter was saying, we're not fully ramped on FPD with our installed capacity. So we can get there. But customer driven.

Yes. Okay, so it seems like you have a pretty clear visibility in high-end FPD based on customer demand. It seems like memory, I think, most people could buy into that as well. Can you talk to us a little bit about what gives you confidence that you'll see that ramp in high-end logic and say, as we progress over the next couple of quarters?

Yes, I'll make a comment, and then I'd like Chris to chime in on the different quals that we are starting. So the current quarter really shaped up just as we thought it would 3 months ago. There was no big surprises for us. We basically guided flat and that's what we got. The only thing that was -- I would describe as an incremental negative for the quarter was the 28-nanometer business in Taiwan was -- on the margin, a little more negative than we had expected. We discussed on the call that as effect of the TSMC at the end of last calendar year have brought significantly more 28-nanometer capacity and that was creating competitive problems for our customers. So what we expect will generate a shift in our 28-nanometer business is that UMC in particular, was granted permission by the Taiwan government to ramp 28-nanometer in China. And that's important, because the Chinese government is giving all Chinese fabless customers incentives, financial incentives, to build 28-nanometer chips in China.

Today, there is no high-k metal gate last 28-nanometer logic flow in production in China in any kind of volume. So UMC will be the first. We're giving them an unfair competitive advantage, which is great for them and even, I would say, better for us. But when that materializes, it looks, by all indicators, that the business will be very favorable for them for several quarters. So that's what gives us confidence that our logic business is going to move in the other direction. In addition to that, I made some comments about Korea. And Chris, why don't you make some comments about the quals we have going right now?

Sure, Peter. Thanks. So the 14-nanometer merchant business in general, wasn't quite as robust overall as we'd thought. I think that cycle was a little muted for the industry. We did complete quals and we are working on more of them now. But the difference now, I'd say particularly in the last 3 to 6 months, is the pull on those is really based on what we see as capacity need among the customers as opposed to just back up and nice to have. So we have a number of existing and also new 14-nanometer quals, underway. They're being pulled aggressively by the customer base, much more than we've seen I would say, in the last 12 months. And there seems to be a real need for that extra mask capacity coming online. At the same time, we have initiated quals in 10 and 7 already, which was a little sooner than we had thought and it's relatively recent news. Again, last 3 or 4 months. So on the logic side, both 14 and then the future nodes, there seems to be a real need-based pull right now among some of the larger chipmakers to pull those technologies forward. The last comment I'll make, you may have seen some things on 22-nanometer, which was a little bit of a no-show node for a lot of logic chipmakers. We are seeing renewed interest in that node right now amongst some of our existing customers, and we have qualifications going on in that area as well. Those should proceed a little more quickly, because it's a leading edge, but it's a little bit older technology compared to 14. So those all, in aggregate, are giving us a good amount of optimism, the market demand is there. And the quals are in place to make it happen.

And just one qualification, Peter. You mentioned this dynamic with UMC in China. When do you see that ramping? Is that in -- sometime in the current quarter? Or is that 1 or 2 quarters from now? Any sort of ranging on that would be helpful.

We know they are running very hard at it. So I really don't want to speak for them, but if you look at their public announcement, they expect the 28 to be down sequentially, but up in the second half of the year. So that's what they have said and that's what we'll say. So that -- and I think, that's very reasonable from what we can tell.

Our next question comes from the line of Stephen Chin with UBS.

This is Neal on for Stephen. Regarding the JV with DNP, how does this change your previous outlook on China? Whether as the known dollar terms or percent of total revenue? And similarly, how does that change your outlook for the number of China customers that you think you can start qualifying with?

Yes, how it changes our outlook is, on the margin, everything is incrementally better. We ramped to profitability faster. We get -- the way we anticipated an investment in China was really over a 5-year period, 2 waves of investment. So we think we'll therefore, make the second wave just a little bit faster, and we expect that where we plateau after the second wave will be incrementally higher, based on being able to [persist]. As I said, what I would describe not as a supplier but strategic partner. And then over the long run, we think our prospects to preserving the merchant market in China are going to be enhanced by coming together versus having the merchant shift to captives. Because when you walk around China, as we do quite a bit, there's no shortage of money. There's plenty of money to own anything you want there. What there is a shortage of is technology. So we prefer to have the Chinese customers focused on solving their IC technology needs, not worrying about photomasks, but make no mistake about it, they have plenty of money to build mask shops. There's no doubt in that, but they don't have the technology to do it. So we'll make sure that they don't need it.

And as a follow-up on high-end FPD, are you still -- how optimistic are you for second half of the year, 4Q, and even going to calendar 2018 on high-end flat panel display? And maybe just sort of for the displays photomask industry in general, not specifically PLAB can you give us an idea of the sort of math or given sheets per month of capacity, what the sort of math is to say what these photomasks demand might be from that amount of OLED capacity?

Well, if you look at -- if you look around the world where the investments are being made, there is -- there's now 3 G10.5, in fact construction of 3 G10.5 factories underway in China, with I think very definitive plans for at least 2 more. So there's a lot of money being spent in China specifically, on G10.5. There's also a decision to be made in Paju in Korea. LG has a very large factory going up and they're right now, I think, trying to finalize the decision between G10.5 and G9+ OLED. So that's one place where a lot of money is being spent. The other place where a tremendous amount of money is being spent is in AMOLED. And that's both in Korea as well as in China. In fact, we shipped last quarter two -- what we believe to be in one customer's case, their very first AMOLED mask set into China. And in the other customer's case, we believe we and another supplier ship their first AMOLED mask sets into their line. So there's a tremendous amount of money being spent on AMOLED, both in Korea and China. So we're very confident in the growth of that market. And maybe something that's not fully appreciated is there's really 2 types of AMOLED, something that the industry people described as rigid AMOLED, and then there's flexible AMOLED. And all of the sexy new phones from Samsung and the A company take advantage of flexible AMOLED, that's the A3 line at Samsung and beyond. But there's also something called -- that we call rigid AMOLED, that's the Samsung A2 Line, and most of the capacity is coming online in China. And this is going to serve the second tier handset suppliers, probably will find its way into tablet computers, replacing standard LCD displays. And there is a lot of demand that we can see in the next couple of quarters in that market segment as well as what you really have to master before you go on to flexible AMOLED displays. So there is a definite widening of the AMOLED market in front of us, broadening of that market. And we intend, of course, to take advantage of both of those market segments aggressively.

Our next question comes from the line of Tom Diffely with D.A. Davidson.

So first Sean, a question on the CapEx. I'm surprised it didn't come down a little bit, just because you're now going to share that $20 million to $30 million essentially with Dai Nippon?

Yes, it could come down, but we decided not to reduce it just yet, because the deal just closed yesterday. And if we are consolidating it, it still would be part of our CapEx. It doesn't change.

Okay. So I guess in a sense, since you're going to share the cost of ramp that $160 million facility over the next couple of years, does that change the plan for your current cash at all? You have roughly $4 of net cash per share.

Not necessarily, because as Peter alluded to, it's going to come out of our Taiwan subsidiary. But the total plan has not changed over the next 5 years. In essence, in theory, we are sharing it but it's still going to come out of our operating cash flow and the CapEx will be on our P&L because we consolidate it.

Yes. Okay. Understand. So when you look at the joint venture, essentially it looks like an extension of the Taiwan joint venture. So I'm curious, was part of the decision driven by the big anchor customer here?

Well, I think, generally, the big anchor customer is part of the derisking of the -- our initial investment in China. But as far as the partnership and the JV goes, I would just say again, the big anchor customer does see us as a partner and our objective is to have every other memory logic manufacturer in China, see our entity there has exactly the same thing, as a partner, not just a supplier. So I would use UMC has a model for what we're trying to achieve generally, in China.

Okay. And obviously, it looks very attractive, you're reducing your CapEx over time, essentially. You're taking away your biggest competitor and you created probably the dominant supplier in the fastest growing region. But what about the technology? What's in place to protect your technology, both against your competitor Dai Nippon as well as the local market?

Well, I mean, again, we -- the way we've articulated the agreement with this JV are very similar to how the agreements were written for our JV in Taiwan. And we see no technology leakage from -- in either direction as a result of 3.5 years of working together. So I think, we're pretty confident that likewise, there'll be no technology leakage in China.

Okay, great. And then finally, on the flat panel side. Especially on the flexible side, have you seen a bit of a delay from initial plans as to when the capacity is ramping? Typically we see big ramps ahead of marquee phone launches, but your ramp seems to be a little later in the year.

If you look at what we have done right, we've staged our tools, and as you said, we've kind of -- we pushed the installation of the tools back a quarter to do our very best to time them to their ramps in the market. So that's our job. We can't control the market, but we can to some degree, as Sean always says, control the timing and the delivery of our CapEx to maximize our financial returns, and that's what we have aspired to do here, and we're, I think, very confident we're going to be successful with it.

Okay. And just want to make sure it was a change in the timing of the market as opposed to perhaps share shifts.

No. I don't think we've lost any share. We're clearly on a mission to gain it. So -- but we're not on a mission to punish our P&L to get that job done.

And our next question is from the line of Patrick Ho with Stifel.

Maybe just as a follow-up to Tom's question on the JV. I understand the mitigating of cost and the sharing of the risks having a partner there. But at the same time, that also eventually takes away from some of the future revenues and profits you guys could have earned on your own. Was this, I guess, strategy or this initiative based on potentially eliminating a very viable competitor that could have gone into China on its own? And now you're actually sharing the future profits down the road?

Well, again, Patrick, I think our view is that, by coming together, we are creating more competitive merchant in China that can do a better job taking care of customers. We've been doing this for 48.5 years, almost 49 years. Actually, yes, all -- in a month, it'll be 49 years we've been doing this. And our culture always has been, for 49 years, to take care of customers, and to be the low-cost producer. So 10 years ago, we added technology to the market basket of what we provide the customers. But in our mind, this is all about the customers. We are doing our best to provide them with the best products at the best price and by doing what we have done, we believe we can satisfy that mission. And it's very much true to what we have been, what we are and what we expect to be in the future.

Okay. And maybe as a follow-up, maybe Sean, in terms of one of the earlier questions on margins. As the AMOLED business begins to ramp, and I don't know, you don't have to get quantitative, but qualitatively, how do you look at that ramp and its potential impact to margins? Because I guess you have start-up costs. You have the additional writers that are going in, how do we look at the margin profiles for the rest of the year as the AMOLED business ramps? And maybe into 2018, where I assume that, as you get to full utilization on the new writers, you'll see a margin expansion?

Yes, as Peter alluded to in his prepared remarks, we weren't at full capacity, but it did ramp. April we exited, we did about $25 million. We're targeting with the capacity that we have at $30 million. We stated on the previous call -- last quarter conference call, I believe, that with the new writers, we should get up to hopefully, $40 million or over that per quarter. So we would expect margin expansion without getting too specific, because we don't disclose margins, but we believe it's a great opportunity, otherwise we wouldn't have made the investments.

Ladies and gentlemen, there are no further questions at this time. I will now turn the call over to Peter Kirlin for closing remarks.

Once again, thank you for joining us this morning. We are optimistic regarding high-end demand trends for both IC and FPD as we enter the second half of the year. Plus the JV we're forming with DNP in China will help us both compete more effectively in a strategic, important growing region, creating a clear path to a successful merchant mask producer in China.

Finally, we have the financial strength and flexibility to allow us to pursue organic growth as well as strategic M&A. I look forward to updating you as we progress.

Ladies and gentlemen, that concludes the conference call for today. We will thank you for your participation and ask you to please disconnect your lines.